A decade into the Great Depression, the U.S. housing market was barely breathing. Credit had evaporated, foreclosures were mounting, and homeownership—once the cornerstone of the American dream—was fading fast.
With the housing market in freefall, President Franklin D. Roosevelt had two options: stand back and watch, or redraw the rules entirely. He picked up his executive pen, and in 1938, Fannie Mae was born.
“Main Street, Broadway, the mills, and the mines will close if half the buyers are broke. I cannot escape the conclusion that one of the essential parts of a national program of restoration must be to restore purchasing power to the farming half of the country.“
Franklin D. Roosevelt, in a nationwide radio address, April 7, 1932, via The American Presidency Project
Not a typical government agency and not quite a private company, it was a strange hybrid—a government-sponsored enterprise, or GSE. Its job: to buy up mortgages, free up bank capital, and restore the flow of home loans.
It worked. Too well, some would say.
By the late 1960s, Fannie Mae had grown into a financial giant, dominating the secondary mortgage market and holding massive sway over U.S. housing finance. Recognizing the risk of an institution that was well-intentioned but growing too powerful, policymakers introduced some healthy competition in the form of a little brother for Fannie: Freddie Mac, launched in 1970 to keep the market balanced and avoid monopolistic control. While not direct rivals, the two GSEs developed slightly different pricing models and operational styles—subtle distinctions that gave lenders reasons to favor one over the other. That quiet competition helped the system stay efficient and responsive.
In building a secondary mortgage market, where loans could be efficiently packaged and sold to investors, they didn’t just solve a Depression-era crisis; they created a system that would go on to anchor the American economy for generations.
The Collapse of Two Titans
During the 2003–2007 housing bubble, private investment banks led the subprime charge—but Fannie Mae and Freddie Mac weren’t far behind. Eager to defend their turf, they loosened underwriting standards and bought huge volumes of securities backed by risky loans. Fannie, in particular, dove deep into subprime territory.
By the time the bubble burst, the GSEs had over $5 trillion in combined obligations and were, according to the Financial Crisis Inquiry Commission, “grossly undercapitalized.”
Foreclosures soared. The market seized up. And suddenly, Fannie and Freddie were the last major buyers still standing—forced to keep purchasing mortgages, even the toxic ones, to keep the system from collapsing.
“Today, the Federal Housing Finance Agency (FHFA), the regulator of Fannie Mae and Freddie Mac, has determined that these housing mortgage companies cannot continue to operate safely and soundly and fulfill their public mission, posing an unacceptable risk to the broader financial system and our economy. FHFA has announced that it will place the companies in conservatorship and appoint new leadership.“
George W. Bush, in a televised national address from the White House, September 7, 2008, via The American Presidency Project
In September 2008, the government stepped in. Both GSEs were placed under conservatorship—a legal limbo where they remained technically private but were fully controlled by a federal regulator. Their boards were sidelined, profits rerouted to the Treasury, and key decisions handed over to Congress. The bailout was massive. They ended up drawing $191.4 billion from taxpayers—an extraordinary intervention that few saw coming, and even fewer forgot. Shareholders were not spared; stock values collapsed, dividends were halted, and their equity was effectively wiped out. And yet, despite the scale of the rescue, the companies themselves rebounded. As of today, they have paid $279.7 billion to the Treasury, generating over $88 billion in net gains for taxpayers—not shareholders.
What began as a stopgap intervention has become a long-term arrangement—and their fate has been in limbo ever since.
Trump’s Privatization Push
A few months ago, President Donald Trump announced he was “giving very serious consideration” to privatizing Fannie Mae and Freddie Mac. It wasn’t his first time. He’d pushed for it in his first term but ran into a wall of political resistance, competing priorities, and the sheer complexity of pulling it off. To Trump, the case is simple: the government shouldn’t be in the mortgage business. The longer the GSEs stay in conservatorship, the more they blur the line between public mission and private enterprise.
“I am giving very serious consideration to bringing Fannie Mae (FNMA) and Freddie Mac (FMCC) public. I will be speaking with Treasury Secretary Scott Bessent, Secretary of Commerce Howard Lutnick, and the Director of the Federal Housing Finance Agency, William Pulte, among others, and will be making a decision in the near future. Fannie Mae and Freddie Mac are doing very well, throwing off a lot of CASH, and the time would seem to be right. Stay tuned.“
Donald J. Trump, May 21, 2025, via Truth Social
Now that the GSEs are generating steady profits under federal control, this may be Trump’s window of opportunity. Last week, the Wall Street Journal reported that the Trump administration is exploring plans to start selling stock in the mortgage giants, potentially raising around $30 billion, putting the combined value at over $500 billion.
Moving from government control to private hands is easier said than done. Privatization would require navigating a thicket of legal, political, and structural obstacles: Congressional sign-off, regulatory redesign, housing affordability mandates, and deep questions about who takes on credit risk if the government steps back.
Hedge funds and private investors who hold shares in the GSEs are eager for privatization because it could dramatically increase the value of their holdings, which have been depressed for years under government conservatorship. That includes the federal government, which holds a 79.9% warrant stake in both GSEs—potentially worth hundreds of billions—and, like investors, sees value in monetizing those warrants if the companies are released from conservatorship. Some hedge fund managers, like Pershing Square’s Bill Ackman, have gone as far as suggesting merging the two GSEs, but the roadmap for that would be even murkier.
Potential Repercussions of Privatization
Critics warn that without a federal backstop, the entire mortgage system could become riskier, more expensive, and less accessible.
Start with interest rates. If lenders can’t rely on continuous government guarantees, they’ll raise rates to cover the added risk. Even a one-point spike could make homeownership unaffordable for millions and derail investment math across the board. We’ve already seen a similar surge in recent years. According to data from FreddieMac.com, the Federal Reserve’s benchmark rate climbed by roughly 5.25 percentage points, from near zero to about 5.5%, while the 30-year fixed mortgage rate rose by about 4 percentage points—from around 3.2% to just over 7%.
But the problem isn’t just price—it’s reach. Private lenders, freed from any public mandate, may retreat from borrowers with weaker credit or lower incomes. Communities that rely most on affordable housing could be the first locked out.
That brings us to multifamily. Fannie and Freddie finance about 40% of the apartment market, including a huge share of affordable units. If that lifeline disappears, investors may still finance deals—but at a much steeper cost. A $50 million loan could carry $500,000 more in annual interest. That cost gets passed down, unit by unit, to renters.
The housing market runs on predictability. Shake that too hard, and the ripple effects hit everyone—from first-time buyers to institutional landlords.
The Verdict Is Still Out
Fannie Mae and Freddie Mac were designed to make housing finance work—for lenders, for borrowers, and for the system as a whole. They succeeded, then failed spectacularly, then became something no one quite planned for: profitable, permanent, and politically untouchable.
Privatization could unlock long-term value, restore market discipline, and finally resolve a crisis that’s been dragging on for over a decade. Or it could fracture the system that, according to 2016 data from the Federal Housing Finance Agency’s Office of Inspector General, supports $11 trillion in mortgages and helps finance 40% of America’s apartments.
For borrowers, it’s a question of affordability. For investors, it’s certainty. For the country, it’s a question we’ve dodged since 2008: should housing be treated as a public good or a private risk?
We’re still waiting for an answer.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
